When the Consumption Function Is Expressed as C = Ca

question 225

Multiple Choice

When the consumption function is expressed as C = Ca + b (1- t) y, income taxes act as an automatic stabilizer because:

• A) when the economy experiences a large increase in GDP, the government's tax collection increases without the approval from Congress, increasing disposable income and consumption.
• B) when the economy experiences a large increase in GDP, the government's tax collection decreases without government action, decreasing disposable income and consumption.
• C) when the economy experiences a large increase in GDP, the government's tax collection increases without government action, decreasing disposable income and consumption.
• D) when the economy experiences a large increase in GDP, the government's tax collection increases without government action, increasing disposable income and consumption.

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